LDN - Business

Microsoft, Activision to sell streaming rights to secure biggest video gaming deal

[August 22, 2023] By Kate Holton and Paul Sandle

LONDON (Reuters) - "Call of Duty" maker Activision Blizzard will sell its streaming rights to Ubisoft Entertainment in a fresh attempt to win approval from Britain's anti-trust regulator for its $69 billion sale to Microsoft.

Microsoft had announced the biggest gaming deal in history in early 2022, but the acquisition was blocked by Britain's competition regulator, which was concerned that the American computing giant would gain too much control of the nascent cloud gaming market.

After months of back-and-forth, the Competition and Markets Authority (CMA) said on Tuesday it had stuck by its original decision to veto the deal, forcing Microsoft to come forward with new terms.

Under the restructured deal, Microsoft will not be able to release Activision games like "Overwatch" and "Diablo" exclusively on its own cloud streaming service — Xbox Cloud Gaming – or to exclusively control the licensing terms for rival services.

Instead, French gaming rival Ubisoft will acquire the cloud streaming rights for Activision's existing PC and console games, and any new games released by Activision in the next 15 years. That will apply globally but not in Europe, where Brussels had already accepted the original deal.

In Europe, Ubisoft will get a non-exclusive license for Activision's rights to enable it to offer those games in that region too.

Tom Smith, a partner at law firm Geradin Partners and previously legal director at the CMA, said it now looked like the deal would go through. "The process has been torturous, and there's still possibly scope for the wheels to come off, but we shouldn't expect Big Tech deals to sail through nowadays," he told Reuters.

Microsoft said on Tuesday it believed its new proposal was "substantially different" and it expected it to be reviewed by the CMA by Oct. 18.

The CMA said it would examine the new deal under its usual system, with a Phase 1 process ending on Oct. 18. If it still has concerns about the impact on competition, the CMA could open a much longer Phase 2 examination.

The two American companies have already extended the deal deadline - pushing it back by three months to Oct. 18 - after the regulatory process took longer than expected.

Alex Haffner, competition partner at UK law firm Fladgate, said he did not believe Microsoft would have taken this new step if it did not believe it would be able to get the new deal past the British regulator by Oct. 18.

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A view shows a Microsoft logo at Microsoft offices in Issy-les-Moulineaux near Paris, France, January 25, 2023. REUTERS/Gonzalo Fuentes/File Photo

EFFECTIVE COMPETITION

CMA Chief Executive Sarah Cardell said the UK regulator would now look closely at the new deal, including seeking the thoughts of third parties.

"Our goal has not changed – any future decision on this new deal will ensure that the growing cloud gaming market continues to benefit from open and effective competition driving innovation and choice," she said in a statement.

The major concession by Microsoft - which could have offered a similar remedy during the original inquiry - marks a win for Britain's CMA, which has taken a tough approach to tech deals since it became a standalone regulator following Britain's departure from the European Union.

The Federal Trade Commission in the United States also opposed the deal, but it has failed in its bids to block it. The European Union, however, waved it through after accepting Microsoft's commitments to license Activision's games to other platforms.

The CMA first said it would block the deal in April and was preparing to go to court to defend its case.

However it took the rare step of reopening its investigation in July after Microsoft said commitments accepted by the European Union and a new agreement with Sony constituted a material change.

The CMA said on Tuesday that, having reviewed those changes, it still did not accept them and would block the original deal, forcing the U.S. giant to come back with its new terms.

Microsoft said Ubisoft would acquire the rights through a one-off payment and a market-based wholesale pricing mechanism, including an option that supports pricing based on usage.

Ubisoft's shares listed in Paris were up more than 7% at 0950 GMT, making them the top gainer on the pan European STOXX 600 index.

(Reporting by Yadarisa Shabong in Bengaluru and Kate Holton in London; Editing by Rashmi Aich, Sachin Ravikumar, Barbara Lewis and Sharon Singleton)

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